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South Korea deepens reliance on Saudi crude; September shipments up 30% on year


Saudi crude's market share in South Korea rises to 32.6%

Refiners discard diversification strategy, seek stability in Middle East supply

September Russian crude imports decline 85% on year

  • Author
  • Philip Vahn    Charles Lee
  • Editor
  • Adithya Ram
  • Commodity
  • Natural Gas Oil

South Korea has increased its reliance on Saudi crude oil with shipments from the key OPEC country rising for the third consecutive month in September, while major local refiners plan to step up efforts to secure a steady inflow of Persian Gulf supplies on a longer term contractual basis, industry sources said over Oct. 18-20, based on the latest customs data.

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Asia's third biggest crude importer took 30.65 million barrels of crude from Saudi Arabia in September, up 30.3% from 23.53 million barrels received a year earlier, marking the third consecutive month of year-on-year increase, showed data released Oct. 18 by the Korea Customs Service.

In the first three quarters, shipments from Saudi Arabia totaled 254.65 million barrels, making up 32.6% of the overall refinery feedstock imports of 781.29 million barrels over January-September, according to S&P Global Commodity Insights' calculation. In the first nine months of 2021, the share of Saudi crude in the total import basket was 28.1%.

As European refiners absorb more US, North Sea and West African crudes to replace Russian Urals, South Korean and a slew of other Asian refiners are expected to depend more heavily on Middle Eastern supplies.

"Saudi Aramco, as well as other major Middle Eastern producers, understand the importance of Asian customers and how crucial the Asian market is in affecting their finances," said a feedstock manager at a major South Korean refiner.

"Crude import diversification used to be the industry-wide focus before but things have changed quite drastically over the past year or so. Securing a steady stream of supplies from top Middle Eastern producers like Saudi Arabia is the key theme in times of global supply and geopolitical uncertainties," the feedstock manager added.

Saudi Aramco seems keen to maintain its market share in oil-dependent Asia despite the recent announcement by OPEC+ to cut the group's production quota, S&P Global reported earlier citing multiple crude traders across Northeast and Southeast Asia. Saudi Arabia was heard to have provided most Asian buyers -- especially refiners in India, China, South Korea and Japan -- with full term crude volumes for November, according to refinery sources and sour crude traders across the region.

Still, South Korean refiners indicated that they plan to hold multiple meetings with major term Middle Eastern crude suppliers to confirm and secure at least their very minimum monthly requirements for the next few quarters, fearing that OPEC+ could conduct further output cuts whenever benchmark prices fail to trend in the group's favor.

Typically, Asian refiners and key Middle Eastern suppliers negotiate specific term supply volumes on a quarterly basis, but the feedstock managers indicated that they plan to step up efforts to fix minimum guaranteed volumes for the next six to 12 months.

Russian, US shipments extend fall

South Korea's crude imports from Russia fell 86.1% year on year to 706,429 barrels in September, the customs data showed. For the first nine months, Russian crude arrivals declined 52% year on year to 19.39 million barrels.

South Korean refiners have practically stopped purchasing Russian crude as they look to avoid trade, logistical, legal and financial complications and maintain a good corporate reputation. However, Chinese traders often move Far East Russian ESPO crude to leased storage facilities in South Korea's southern coastal city of Yeosu, before taking the cargoes to their customers in China, according to sweet crude and condensate traders based in Singapore and Seoul with close knowledge of daily Far East Russian crude trade flows.

South Korea's crude imports from the US also fell 38.7% year on year to 6.72 million barrels in September, marking the fourth consecutive month of year-on-year decline.

On average, South Korea typically took a minimum of 10 million b/month from the US over the past several years, while US suppliers were more than willing to provide additional VLCCs or around 2 million barrels upon request, crude and condensate trading managers based in Seoul and Singapore told S&P Global.

However, since mid-second quarter, US suppliers have been hesitant to hand out extra cargoes to some Asian customers due to stronger demand from Europe as well as growing political pressure in the US to reserve crude supply for the domestic market in an effort to temper surging retail gasoline prices.

Building crude reserves

South Korea's crude stockpiles increased 19% year on year to 46.16 million barrels as of end-August compared with 38.8 million a year ago, driven by refiners' active spot and term Middle Eastern crude procurement in recent trading cycles.

The country's overall stockpile of refined oil products also rose 7.0% year on year to 65.46 million barrels as of end-August.

State-run Korea National Oil Corp. is expected to release more detailed oil trade data for September, including shipments from other major suppliers and import costs after Oct. 25.